On 29th October 2018, Philip Hammond finally delivered the highly anticipated Autumn Budget 2018. After much speculation, it has been confirmed that IR35 reform will be extended to the private sector. Despite fears that the reform would be introduced in April 2019, the Chancellor of the Exchequer said the changes would not be implemented until April 2020. Additionally, the legislation will only apply to PSCs with large and medium-sized clients.
Section 3.8 of the Budget 2018 Report
An extract of the Budget 2018 surmises the plan for IR35 reform in the public sector. You can read the full report here.
“To help people comply with the existing rules and bring private sector organisations in line with public-sector bodies and agencies, the government will reform the off-payroll working rules (known as IR35) in the private sector. This follows consultation and the rollout of reform in the public sector. Responsibility for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker. To give people and businesses time to prepare, this change will not be introduced until April 2020. Small organisations will be exempt, minimising administrative burdens for the vast majority of engagers, and HMRC will provide support and guidance to medium and large organisations ahead of implementation.”
How has the industry reacted to Budget 2018?
The delay has been welcomed by the industry as it gives time for suitable preparation to be done. Bauer & Cottrell observed that it seems the “government has listened to many of the concerns raised. The good news is the delay of the roll-out until 2020 and only to medium and large sized businesses.” Nonetheless, the reality of how IR35 will work in the private sector still eludes many and Kate Cottrell went on to reiterate the on-going issue of IR35’s ambiguity and lack of clarity:
“The very bad news is that we don’t actually know how the rules for the private sector are going to work and do not have certainty, especially when you read the government’s response to the consultation. They are planning to ‘refine the design of the reform’, ‘further explore options for the consequences of businesses failing to use reasonable care’ (blanket decisions), ‘improve the CEST tool’ and all of this will be subject to yet another consultation in the coming months. All this falls short of admitting that the public- sector rules have been a failure and it is going to be very difficult for businesses to start making plans when the devil of the detail will not be known until the draft finance bill in Summer 2019. All in all a most unsatisfactory position.”
Despite the industry finding some relief in Hammond’s exemption of PSCs with small clients, there is still apprehension for those this reform will still apply to. Concern has been raised that the Government has simply made an already complex legislation even more complicated. With the reform only applicable to medium and large-sized clients, this leaves contractors with the additional task of assessing whether their client is a small, medium or large business and then working accordingly from there.
What are HMRC’s next steps?
A further consultation with a more detailed framework of the reform should be published in the coming months. This consultation will inform the draft Finance Bill legislation, which is expected to be published in Summer 2019.
Moreover, HMRC has confirmed that reform will not be retrospective and they plan to focus all efforts on ensuring businesses comply with the reform rather than focusing on historic cases. They have also declared they will continue to work with stakeholders to provide wider guidance and identify improvements to CEST, ensuring it meets the requirements of the private sector.
Bauer & Cottrell responded to the claim that the reform will not be retrospective, disputing that this cannot be relied upon:
“We once asked HMRC’s IR35 Forum members if there was a red line on retrospection and they stated categorically there was not and this is something they could never do…this brief along with much of HMRC’s published guidance should be taken with a pinch of salt.”
What should contractors do now?
Chris James, FCSA chairman advises all in the industry, whether agency, end-user or contractor in the private sector to “work together to properly establish employment status.” But he did go on to advise that the help of experts is a sensible route to take:
“A proper status assessment includes an assessment of the working practices as well as the contractual position on an assignment. Therefore, it will be sensible for agencies and end users to secure the help of experts in the field.”
If you manage a limited company and are concerned about IR35, at K&B Accountancy Group, we offer a package designed to support contractors against IR35. The Essential IR35 package specifically includes IR35 advice, review and protection from our partners and experts Bauer & Cottrell. Get in touch today for more information.